PRIYAL TRADING COMPANY, MUMBAI V. INCOME TAX OFFICER 17(2)(5), MUMBAI

ITA 4232/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1793 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 18-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Bogus purchase

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) I.T.A. NO. 4232 /MUM/ 201 8 (ASSESSMENT YEAR 20 10 - 11 ) M/S. PRIYAL TRADING CO. DATAR NIWAS, GROUND FLOOR 87, PERIN NARIMAN STREET MUMBAI. PAN : AAHFP8240Q V S . ITO WARD 17(2)(5) MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI JITENDRA SINGH DEPARTMENT BY SHRI CHAITANYA ANJARIA DATE OF HEARING 10.6 . 201 9 DATE OF PRONOUNCEMENT 11 . 6 . 201 9 O R D E R THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASS ESSEE IS AG G RIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES AMOUNTING TO RS. 4,48,726/ - 2. THE ASSESSING OFFICER IN THIS CASE HAS MADE 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE AMOUNTING TO RS. 4,48 ,726/ - . 3. U PON ASSESSEE S APPEAL ID CIT A CONFIRMED THE SAME; 4. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. IN THIS REGARD I NOTE THE DECISION OF HONOURABLE GUJARAT HIGH COURT IN TH E CASE OF PR . CIT VS T R KAPADIA IN TAX APPEAL N O . 691 OF 2017 . I N THIS CASE THE HONOURABLE HIGH COURT HAS CONFIRMED THE DELETION OF DISALLOWANCE ON ACCOUNT OF ALLEGED BOGUS PURCHASE AS NECESSARY DOCUMENTARY EVIDENCE FOR THE PURCHASE S WERE ON RECORD . THE S PECIAL LEAVE PETITION AGAINST THIS ORDER HAS BEEN DISMISSED BY THE HONOURABLE SUPREME COURT IN ITS DECISION DATED 4/ 5/ 2018 SLP CIVIL DIARY NO 12670/2018 . M/S. PRIYAL TRADING CO. 2 5. U PON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PU RCHASE. ADVERSE INFERENCE S HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PU RCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ E XIMP ENTERPRISES (IN WRIT PETITION NO 2860 ORDER DT 18.6.2014) . IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE S FOR THE PURCHASE SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION IN MY CONSIDERED OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE 12.5 % DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEVER IN THIS REGARD LEARNED COUNSEL OF THE ASSESSEE HAS PRAYED THAT WHEN ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRANSACTI ON IS TO BE TAXED THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12.5% BEING DIRECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS PURCHASE. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS ALREADY SHOWN A GROSS PROFIT OF 3%. 6. UP ON CAREFUL CONSIDERATION I FIND CONSIDERABLE COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. ACCORDINGLY I MODIFY THE ORDER OF LEARNED CIT( A ) AND DIRECT THAT THE DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 % OF THE BOGUS PURCHASES AS REDUCED BY THE GROSS PROFIT RATE ALREADY DECLARED BY THE ASSESSEE ON THESE TRANSACTIONS. LD COUNSEL OF THE ASSESSEE FAIRLY ACCEPTED THIS PROPOSITION. M/S. PRIYAL TRADING CO. 3 7. IN THE RES ULT THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 11 . 6 . 201 9 . SD/ - (SH A MIM YAHYA ) ACCOUNTANT MEMBER MUMBAI ; DATED : 11 / 6 / 20 1 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBA I